Embattled President Ali Abdullah Saleh rejected an exit plan by Gulf states trying to broker an end to bloody unrest, as tens of thousands of Yemenis massed on Friday for pro- and anti-regime protests.

"Our power comes from the power of our great people, not from Qatar, not from anyone else. This is blatant interference in Yemeni affairs," Saleh told a massive crowd of regime supporters in Sanaa.

"We were born free, and we have free will, and they have to respect our wishes. We reject any coup against democracy, the constitution and our freedom," he said.

His speech came a day after Qatar's Prime Minister Sheikh Hamad bin Jassem al-Thani had said members of the Gulf Cooperation Council (GCC) 'hope to reach a deal with the Yemeni president to step down'.

It was delivered as tens of thousands of Yemenis turned out for rival protests in the capital, one supporting the veteran president and the other calling for his departure.

Those at the pro-regime rally assembled in Tahrir (Liberty) Square, chanting slogans in support of Saleh, a strategic ally in the US fight against Al-Qaeda who has been in power since 1978.

"With our souls, with our blood, we sacrifice for Ali Abdullah Saleh," his supporters, some of whom carried his picture, chanted after weekly Muslim prayers.

"The people want Ali Abdullah Saleh," they chanted, in a variation on the ubiquitous opposition slogan, 'the people want to topple the regime'.

They then marched from Tahrir to Sabaeen Square, where Saleh delivered his speech.

A few kilometres (miles) away, anti-regime protesters massed at a square near Sanaa University, chanting 'Go, Ali!'

Clashes were not reported at either demonstration.

The anti-government gathering was held under the slogan 'Day of Steadfastness', while the pro-government rally was dubbed the 'Day of Reconciliation'.

The Gulf Cooperation Council proposal offered to Saleh would have seen him hand power over to his deputy, while providing guarantees of protection to him and his family, the opposition said.

A diplomat in Sanaa confirmed the content of the GCC proposal, adding it includes forming a national unity government led by the opposition.

The offer resembles one the opposition itself made at the weekend calling for Saleh to make way for Vice President Abdrabuh Mansur Hadi to head a caretaker regime.

In contrast to his Friday remarks, Saleh had on Wednesday welcomed Gulf mediation, according to state news agency Saba, which said he 'affirmed the necessity of a serious and fruitful dialogue to overcome the current crisis'.

And Foreign Minister Abu Bakr al-Kurbi had said in a statement published on Friday that Yemen's government was studying the Gulf initiative, and that 'any initiative aimed at finding a solution to the crisis in accord with the constitution of the Republic of Yemen is welcome'.

About 125 people have been killed since protests against Saleh, inspired by successful uprisings in Tunisia and Egypt, began in January.

Washington has expressed fears that Al-Qaeda in the Arabian Peninsula, the active branch of the global terror network based in Yemen, could take advantage of a prolonged crisis, and has pressed Saleh to negotiate a power transition.

"Yemen has really eased up the pressure on Al-Qaeda in the Arabian Peninsula," US Defence Secretary Robert Gates said of the militant group's Yemen-based franchise on Thursday.

The Pentagon has said there are no plans to suspend US military aid to Yemen.

But The Wall Street Journal on Friday quoted unnamed US officials as saying Washington halted an aid package potentially worth $1 billion or more in February amid the growing unrest.

Yemen controls the Bab al-Mandab Strait, the strategic entrance to the Indian Ocean from the Red Sea, through which three million barrels of Gulf oil transits each day towards the Suez Canal and Europe.